Boston ERC Fraud Defense: Strategic Representation by Boston ERC Attorneys

Aggressive Defense Against IRS & DOJ Employee Retention Credit Audits & Criminal Investigations

The Internal Revenue Service (IRS) and the U.S. Department of Justice (DOJ) are actively targeting businesses, corporate executives, and individuals throughout Massachusetts for alleged Employee Retention Credit (ERC) fraud. Created as a pandemic relief measure, the ERC provided substantial financial relief to eligible employers, but aggressive promotion by third-party preparers has turned the credit into a focal point of federal criminal tax enforcement.

Today, IRS Criminal Investigation (CI) special agents and federal prosecutors are rigorously scrutinizing past claims. Whether your company made an inadvertent calculation error or faces formal allegations of improper filing, retaining experienced Boston ERC attorneys immediately is vital to protect your business, assets, and personal freedom.

Facing an IRS Audit or DOJ Investigation over ERC Claims?

Protect your constitutional rights and business under attorney-client privilege. Contact Managing Partner Kevin E. Thorn of Thorn Law Group directly at 617-692-2989 or via email at ket@thornlawgroup.com for a private consultation.

What is the Employee Retention Credit (ERC)?

The Employee Retention Credit was a refundable payroll tax credit offered to qualifying businesses for the 2020 and 2021 tax years. It was taken against employers’ federal payroll tax deposits, and qualifying businesses could receive refunds regardless of their payroll tax liability.

The amount of the ERC changed from 2020 to 2021. For 2020, qualifying businesses could claim 50 percent of up to $10,000 in qualified wages per employee per year. For 2021, qualifying businesses could claim 70 percent of up to $10,000 in qualified wages per employee per quarter. As with all tax laws, there were some limitations and exceptions (i.e., recovery startup businesses were limited to claiming $50,000 per quarter)), but these were the general rules that applied to most employers.  

A key aspect of the ERC, and an aspect that is playing a major role in the IRS and DOJ’s enforcement efforts, was the fact that it was only available to qualifying businesses. To qualify for the ERC, a business must have either:

• Sustained a full or partial suspension of its operations due to a government mandate limiting commerce, travel or group meetings due to the COVID-19 pandemic;
• Experienced a significant decline in gross receipts during 2020 or a decline in gross receipts during the first three quarters of 2021; or,
• Qualified as a recovery startup business for the third or fourth quarter of 2021.

For purposes of claiming the ERC for 2020, a “significant decline” in gross receipts is defined as “when gross receipts are less than 50% of gross receipts for the same calendar quarter in 2019.” A business’s significant decline in gross receipts ended under the ERC when its gross receipts were “greater than 80 percent of gross receipts for the same calendar quarter in 2019.” In 2021, businesses must have suffered a 20 percent quarter-over-quarter decline in gross revenue to qualify for the ERC.

Under the American Rescue Plan (ARP), a “recovery startup business” was any business that began operations after February 15, 2020, and had average annual gross receipts of less than $1 million. While many new companies qualified as recovery startup businesses under the ARP, this option to qualify for the ERC proved to be a significant source of fraud. Many people claimed to start businesses and pay wages when they in fact did not, and many other businesses promoted services online (and are still promoting services online) offering to help people start businesses solely for the purpose of claiming the ERC.

There were many other complexities to the ERC as well. From issues related to telework to issues with calculating qualified wages, these complexities led to many businesses calculating the ERC incorrectly. While inadvertent ERC calculation errors can trigger immediate liability for back taxes, interest and penalties, allegations of intentionally overcalculating the ERC can lead to criminal prosecution for tax fraud and other federal crimes.

Why Businesses Need Experienced Boston ERC Attorneys Immediately

Due to aggressive federal enforcement initiatives, our skilled Boston ERC attorneys recommend that every employer that claimed the Employee Retention Credit conduct a comprehensive legal review of their eligibility and payroll documentation.

For companies that have not yet been targeted by an audit but suspect their third-party tax preparer filed an improper claim, taking proactive, pre-audit remediation steps—such as utilizing the IRS Voluntary Disclosure Program or Voluntary Prepayment Program—can substantially mitigate civil tax penalties and eliminate criminal liability risks.

If you are already under an active audit or criminal tax inquiry related to your ERC filings, retain an experienced IRS criminal tax lawyer immediately. Civil audits conducted by IRS revenue agents can quickly escalate into criminal investigations if agents detect badges of intentional fraud. When you retain the Boston ERC attorneys at Thorn Law Group, we intercept all communications with the IRS and DOJ, assert legal privileges, and craft a defensive strategy designed to neutralize exposure before charges are filed.

Defending Proper vs. Improper ERC Claims: Key Legal Strategies

Defending a company against an ERC audit when you can demonstrate substantiation requires a fundamentally different strategy than defending a company facing an active DOJ criminal investigation. Our Boston ERC attorneys perform an immediate internal audit to assess your true compliance status under current tax statutes and IRS notices.

Once we know whether (and to what extent) our clients have complied with the requirements for claiming the ERC, then our IRS criminal ERC lawyer can formulate and execute a strategic defense. When our clients have fully complied with the credit’s requirements, we can help favorably resolve their audits and investigations by showing that:

• They qualified for the ERC based on one (or more) of the criteria listed above;
• They correctly calculated their qualifying employee wages and applied the credit percentage for the correct tax year; and,
• They remained under the applicable credit cap and otherwise complied with the ERC’s requirements.

When a business has not fully complied with the ERC’s requirements, defending against prosecution for an improperly filed claim involves identifying the specific violation (or violations) at issue and understanding why they happened. While businesses can face civil liability for unintentional violations, allegations of knowingly or intentionally violating the law can trigger a host of criminal charges.

Common Issues Triggering Civil Liabilities & Criminal ERC Prosecution

Federal agents and IRS auditors are actively investigating several widespread compliance issues, including:

• Unsubstantiated Eligibility: Claiming the ERC without meeting gross receipts reduction thresholds or relying on invalid government order suspension claims.

• Ineligible Wage Categories: Claiming credits on wages paid to majority business owners or related individuals prohibited by tax rules.

• PPP Loan "Double-Dipping": Failing to properly coordinate ERC wage allocations with Paycheck Protection Program (PPP) loan forgiveness funds.

• FICA Tax Non-Compliance: Requesting payroll tax credits on employee wages for which standard federal payroll taxes were never deposited.

• Third-Party Promoter Reliance: Utilizing improper formulas, inflated calculations, or fraudulent advice provided by non-certified online ERC "mills".

Regardless of whether an error resulted from an honest miscalculation or bad advice from a promoter, taxpayers remain personally liable for the accuracy of their tax returns. Consult an IRS criminal ERC lawyer at Thorn Law Group to insulate your firm from civil back-taxes, interest, and fraud penalties.

FAQs: Defending Against ERC Fraud Allegations in Boston

What are the federal charges for ERC fraud?

In criminal cases involving allegations of ERC fraud, the DOJ can file a litany of charges against both businesses and their owners. Depending on the specific allegations at issue, mail fraud, wire fraud, tax evasion, aggravated identity theft, money laundering, conspiracy, and government fraud charges could all be on the table.

What are the federal penalties for ERC fraud?

The federal penalties for ERC fraud depend on several factors. In civil cases, businesses can face liability for back taxes, interest and IRS penalties. In criminal cases, businesses can face six or seven-figure criminal fines, while business owners can face fines and federal imprisonment.

What should I do if I made a mistake when claiming the ERC?

If you made a mistake when claiming the ERC, you should consult with an IRS criminal ERC lawyer promptly. To avoid unnecessary consequences, you will need to correct the mistake before it triggers scrutiny from the IRS.

What should I do if I am under investigation for ERC fraud?

If you are under investigation for ERC fraud, you should consult with an attorney promptly in this situation as well. These investigations are moving quickly, and allegations of intentional fraud could lead to an indictment on multiple federal charges.

Contact Our Experienced Boston ERC Attorneys Today

If your business claimed the Employee Retention Credit or is under scrutiny from federal tax authorities, do not wait for the IRS or DOJ to take action. The Boston ERC attorneys at Thorn Law Group offer sophisticated legal defense to safeguard your assets, mitigate civil liabilities, and defend against potential criminal charges.

Schedule a Confidential Consultation

Speak directly with former IRS tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group:

• Direct Telephone: 617-692-2989
• Email: ket@thornlawgroup.com
• Boston Office: 10 Post Office Square, 8th Floor, Boston, MA 02109

Protect your business reputation and financial security. Call 617-692-2989 today to schedule your private consultation with our trusted Boston tax attorneys